Sept. 10 (Bloomberg) -- Republican presidential nominee
Mitt Romney cited a group of economic studies to show that his
tax-cut plan won’t increase the U.S. budget deficit or shift the
tax burden to middle-income taxpayers.

Yet Romney won’t provide specifics on what he would cut,
and the analysts he cites have had to create their own
assumptions.

“People at the high end, high income taxpayers, are going
to have fewer deductions and exemptions,” Romney, 65, said
yesterday on NBC’s “Meet the Press” program. “Those numbers
are going to come down. Otherwise they’d get a tax break.”

The former Massachusetts governor would cut all income tax
rates by 20 percent, dropping the top rate to 28 percent from 35
percent. He would repeal the estate and alternative minimum
taxes, while tax rates on capital gains and dividends would
remain at 15 percent and the corporate tax rate would be cut to
25 percent from 35 percent. The rate cuts would cost the
government more than $4 trillion in forgone revenue over the
next decade.

Romney says he would broaden the tax base by reducing
deductions and other tax breaks to ensure his plan generates as
much revenue as the current system and doesn’t shift the tax
burden from high earners to the rest of the population.

‘A Break’

“I’m bringing down the rate of taxation, but also bringing
down deductions and exemptions at the high end, so the revenues
stay the same, the taxes people pay stay the same. Middle income
people are going to get a break,” Romney said on NBC.

Fiscal issues are at the core of Romney’s and President
Barack Obama’s campaigns. Obama’s plan includes a combination of
tax increases and spending cuts to stabilize debt as a share of
the economy.

Romney seeks a spending-only approach to deficit reduction
that would cut social programs by more than one-quarter and add
money for the Pentagon. Romney’s plan promises tax-rate cuts and
avoids immediate changes to Medicare and Social Security
benefits.

“I want to make sure people understand, despite what the
Democrats said at their convention, I am not reducing taxes on
high-income taxpayers,” the Republican nominee said on NBC.

No Details

When pressed several times for examples of which deductions
he would trim, Romney didn’t provide any. Romney said studies
from Princeton University, Harvard University, the American
Enterprise Institute and the Wall Street Journal show that his
proposal to lower tax rates while reducing the number of
deductions and exemptions for high-income earners would work.

Harvey Rosen, a Princeton economics professor who focuses
on public finance, said in a paper published this month that he
analyzed Romney’s proposal by taking into account the additional
tax income that might be generated by economic growth.

“Under plausible assumptions, a proposal along the lines
suggested by Governor Romney can both be revenue-neutral and
keep the net tax burden on high-income individuals about the
same,” Rosen wrote. “An increase in the tax burden on lower
and middle income individuals is not required in order to make
the overall plan revenue neutral.”

Congressional budget rules don’t allow the use of assumed
revenue from economic growth.

Tax Policy Center

Obama has been attacking his Republican rival’s plan as
mathematically impossible and requiring a tax increase on
middle-class earners after the Tax Policy Center published an
analysis of whether Romney could meet his objectives on rates,
revenue and keeping the tax system progressive. The policy
organization is a joint project of the Urban Institute and
Brookings Institution in Washington.

The Tax Policy Center initially calculated on Aug. 1 that
Romney would need to shift $86 billion of the federal tax burden
in 2015 from top earners to everyone else to meet other goals in
his fiscal plan. It said there weren’t enough tax breaks for
high earners to offset the rate cuts.

An updated analysis Aug. 16 lowered that estimate to $41
billion and said the gap would be eliminated if Romney were
allowed to count higher revenue caused by economic growth. That
analysis assumed that Romney’s plan would eliminate decades-old
tax breaks for life insurance and municipal bond interest.

“Even if tax expenditures were reduced in that most
progressive manner, the Romney proposals as a whole imply a
shift toward a less progressive tax system,” co-authors Samuel
Brown, Adam Looney and William Gale wrote in an updated paper
released Aug. 16.

Romney’s Goals

The researchers set up the study as a bend-over-backward
approach to see if Romney could meet his goals for revenue, tax
rates and the progressivity of the system.

The Romney campaign said the study was flawed and biased.
Looney was an economist in the White House under Democrat Obama,
while Gale worked in the White House under Republican President
George H.W. Bush. Brown is identified on the Tax Policy Center’s
website as a Brookings research associate who previously worked
as an analyst at the Federal Reserve Board.

The Tax Policy Center estimated that in 2015, the rate cuts
would provide a $360 billion tax break for taxpayers making more
than $200,000 a year. Then the researchers examined whether
enough tax deductions for high-income people could be eliminated
to cover the cost, assuming that breaks for savings and
investment remained.

Speculative Model

In an opinion piece published in the Wall Street Journal on
Aug. 29, Martin Feldstein, a professor at Harvard and a member
of the newspaper’s board of contributors who advises the Romney
campaign, said the Tax Policy Center’s forecast based on a
computer model is “inevitably speculative.”

“The key question raised by the Romney plan’s critics is
whether this revenue loss can be offset by broadening the tax
base of high-income individuals,” he wrote. “It is impossible
to calculate the exact effects of the future reforms since
Governor Romney hasn’t specified what he would do.”

“It only requires knowing if enough revenue could be
raised from high-income taxpayers to cover the $186 billion
cost” of Romney’s tax cuts, he wrote. Feldstein calculated the
$186 billion figure based on 2009 income tax revenue.

Taxpayers with adjusted gross incomes over $100,000, or the
top 21 percent of all taxpayers, made itemized deductions
totaling $636 billion in 2009, Feldstein wrote.

Marginal Tax Rate

Applying a 30 percent marginal tax rate to that $636
billion would produce “extra revenue” of $191 billion, “more
than enough to offset the revenue losses from the individual
income tax cuts proposed by Governor Romney,” Feldstein wrote.

In a post on the American Enterprise Institute’s website,
economic research analyst Matt Jensen wrote that the Tax Policy
Center had suggested the threshold of “high income” should be
placed at $150,000 rather than $200,000, the definition used by
Democrats.

“This arbitrary definition matters a lot to this
analysis,” he wrote. By lowering the definition to $150,000,
“the plan might appear to be a transfer from rich to poor
rather than the other way around, or at least closer to
neutral,” Jensen said.

The Romney campaign has resisted explaining how it would
ensure his tax plan wouldn’t add to the deficit.

Romney has offered only hints. In remarks overheard at an
April 15 fundraiser, he said he was considering eliminating
mortgage interest deductions for second homes and the deduction
for state and local taxes.

Mortgage Interest

Ending the state and local tax deduction could generate
$862.2 billion over the next decade, the Congressional Budget
Office estimated last year. Phasing out the mortgage interest
deduction over that period would yield $214.6 billion. The
estimates would be lower if tax rates also were cut.

Eliminating tax breaks is politically difficult; the breaks
for mortgage interest, state and local taxes and charitable
contributions survived the 1986 tax overhaul that broadened the
tax base. Still, in an indication that Romney wants to keep his
options open, Republican party platform drafters refused to
endorse a proposal that would have called for preserving the
mortgage-interest deduction.